Make no mistake, buying a business involves an element of risk. History has shown that acquisition success can be difficult to achieve. Various studies have revealed that many transactions do not live up to expectations and do not create additional value for shareholders (although much of the formal data is related to large public company transactions). Acquisition success requires thorough analysis, preparation, commitment and strategic implementation.
Develop a set of broad criteria that will help identify potential acquisition targets
In spite of the many apparent difficulties, M&A has played a significant role in building many of today’s leading public and private corporations, and will continue to play a pivotal role in growth and succession decisions of companies both large and small. The foundation for success begins with the purchaser having a clear understanding of its strategic direction and plans. This includes an assessment of strengths and weaknesses, and how both internal and external influences impact on the opportunities and threats that arise from this assessment. In particular, how an acquisition can play a role in meeting those opportunities is critical to this assessment.
An important next step is developing a set of broad criteria that help identify potential acquisition targets that are most likely to meet the purchaser’s objectives. The following are some examples of broad criteria or guidelines:
A purchaser’s specific criteria as applied against identified acquisition opportunities will help narrow the alternatives to be analyzed, but should not be so specific as to preclude all candidates from ever meeting all of the criteria.
Having defined its strategy and criteria (as above), the purchaser must assemble a team to search out and investigate acquisition opportunities. The presumption here is that the team will conduct the search through active rather than passive means, as in today’s competitive M&A environment, it is unlikely a passive approach will lead to many solid opportunities. The team must ‘advertise’ its search by making its objectives known in the M&A marketplace, which includes discussing same with bankers, accountants, lawyers and M&A advisors. If a purchaser communicates its intentions to aggressively pursue acquisitions, numerous proposals will be submitted from potential vendors in various forms. While many of the proposals will be unsuitable, the purchaser that has made it known that it is in the market for acquisitions will likely be one of the first ones viewed as a prospective buyer for a company that considers selling. Having a reputation as an active, fair acquirer can be a tremendous asset for a company that is interested in pursuing a strategy of growth through acquisitions.